Here’s one for the annals of unintended consequences: The Democrats’ insistence on high taxes on “the rich” will fall especially hard on highly educated, accomplished women who are living the feminist dream. For some of these women, the new tax policy may even provide an incentive to drop out of the work force, however satisfying their careers have been.
This irony is the result of two policies: the increased marginal tax rates on higher incomes, and the way these apply to two-earner households.
Congress’s fiscal-cliff deal pushed the top marginal tax rate to 39.6 percent, up from 35 percent in 2012. Every dollar over $400,000 an individual makes is taxed at the top rate — but for couples, that marginal tax rate goes into effect after $450,000 in joint earnings. In essence, the second wage-earner in the family is subject to a high tax rate much sooner. In 78 percent of American families, the second wage-earner is a woman.
Democrats make a lot of noise about the injustice of the gender wage gap, but their tax policy actually places the harshest penalty on women who are approaching income parity with their husbands. “The way the brackets are structured, the closer your incomes are to equal, the more likely you are to suffer a marriage penalty,” says Scott W. Drenkard, an economist with the Tax Foundation.
Women who are affluent, professional, and married will now face an incredible tax burden. Take the new federal rates, factor in state and local taxes, and these women really get a shakedown: The total top marginal effective tax rate has surpassed 50 percent in some places, according to a recent report. (Two of those places are New York City and California, both hubs for high-achieving women.)
“Women are certainly more sensitive to income changes, and it may be the thing that pushes someone to the edge,” says Laura Sherbin, an economist at the Center for Talent Innovation who specializes in work-life issues and gender. “Women recalibrate on the margin every day. There are a lot of things that can tip the scale, and it tends to be a very delicate balance.”
High taxes already give workers an incentive to work less, regardless of gender. And even when taxes were lower, the so-called marriage penalty has had a long-observed effect on the female work force.
In 2002, when the total average marginal tax rate for the second earner was 44 percent, the National Center for Policy Analysis reported that “when both spouses work they must usually begin to purchase many services the wife was providing free of financial cost in the home — child care, cooking, cleaning, and so on. After these expenses, many women find that their actual net take-home pay is just a third of their wages. Some married working women actually lose money by entering the labor market. . . . Adding it all up, the tax system sends a curious message to American women: If you are middle- to upper-income and married, the incentive is not to work.”
Even before the new tax hikes, it was becoming more difficult to retain educated, affluent married women in the labor force. Stefania Albanesi, a senior economist with the Federal Reserve, found last year that when educated women have a husband who out-earns them, they are more inclined to quit work. Between 1993 and 2006, that added up to 1.64 million fewer women in the workplace. “They stopped getting income they didn’t need and so they left the labor force forever,” Albanesi told Reuters.
To be sure, there are many reasons women decide to leave the work force. Kids seem to be the biggest factor; more than half of all working mothers think they’d be happier if they could stay at home, according to the 2012 State of Parenthood and the Economy Survey conducted by ForbesWoman and TheBump.com. Many employers don’t do enough to help women balance work and family. Pew has found that 40 percent of working mothers say they “always feel rushed.” And last fall, when one working mom included her crazy daily schedule in her resignation note, the blogosphere lit up with comments from readers who shared her frustration.
No doubt many women will keep working even when their taxes go up, especially if they’ve invested years and thousands of dollars in a career they love.
But the new tax-the-rich policies target exactly the high-achieving professional woman who may be thinking about making a big life change, says Nathan Oman, a professor of business law at William and Mary.
“She’s right at the edge, and then you decrease her return, and she says, ‘Screw it. I’d rather be at home,’” he explains. “I think it’s kind of ironic. A lot of progressives, who would actually very much like to see female work-force participation rise, also favor very high marginal taxes, which would discourage at least some women from working.”
Pamela Stone, a sociologist at Hunter College, studied high-income couples and women who quit their careers for her book Opting Out? She notes that families in the top tax bracket, unlike their lower-earning counterparts, are often in a financial situation where the wife actually has a choice about whether to work or not. She found that women don’t cite marginal tax rates when they drop out of the work force; such financial factors are often secondary or even tertiary considerations. But tax rates may affect “a family who’s right on the cusp, a man or woman whose job is very difficult.”
And the loss of these women has implications beyond the economic sphere.
“We have too many women out of the labor force now,” Stone tells National Review Online. “The cultural impact is that we’re losing a lot of great talent, and we’re also asking women who have trained for professional careers to make incredible accommodations. A lot of the time, we’re finding that women are opting out of those careers and not returning to them. We’re also losing women who could be real change agents at work. These are women who tried to promote flexibility and be real role models.”
— Jillian Kay Melchior is a Thomas L. Rhodes Fellow for the Franklin Center for Government and Public Integrity.